Accounts Receivable: How to Address Clients Who Consistently Pay Late

MHC Marketing    March 15th, 2018  

How to Address Clients Who Consistently Pay Late

Your company is doing well, bringing in new clients and getting lots of new orders or service calls. But even if business looks good on paper, one problem can prevent your company from thriving – a lack of cash. One study found that running out of money is the second leading cause of new business failure.

A company can run out of money for a few reasons. It might not be able to raise the funds it needs to take the next step, for example. Alternatively, it might struggle to get customers to pay on time, creating a significant lag between the time services or products are delivered and the time that the company receives payment.

Whether you’ve been in business for a while or you’re a new startup, there are multiple ways you can cope with clients who pay late. Knowing how to deal with late-paying customers can be the difference between your company growing and moving forward and having to shut its doors.

Identify Late-Paying Clients & Customers of Concern

Before you can figure out how to get late-paying clients to pay on time, it helps to figure out who is paying late. One way to keep track of those who pay late is to make a note on their files when they make a late payment.

For example, if Customer A is 30 days late with an invoice payment, you can make a note such as “30 – 1” in the customer file. When the invoice is marked as paid, your accounts team can also mark it as 30 days late.

If Customer A makes another 30-day late payment, you can make the second note on the file, something along the lines of “30 – 2.” What matters is that the notations you use as part of the system are clear to you and anyone else who has to reference them.

Another way to identify late-paying clients is to create a list of late payers each quarter. Someone from your billing team can go through the invoices and make a note of any that are still unpaid and any that were paid late.

Waiting until the end of the quarter to review who’s been paying late — or who hasn’t been paying at all — can mean a considerable amount of work for your team. It can also mean you miss out on a fair amount of money over that time, as you won’t necessarily catch late payers or customers of concern early on.

Combining the two methods — notating each late payment and how many late payments a customer makes and making a master list each quarter — can offer you the best of both worlds. You’re able to identify customers who might be costing your company a lot and decide to stop working with them before it’s too costly. Additionally, seeing the big picture each quarter can help you determine whether or not late payment is a company-wide problem or limited to a few customers only.

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Understand the Types of Late-Paying Customers

Along with knowing who is paying late, it can be helpful to understand the type of late-paying customers your business is working with. Realizing what might be behind a customer’s late or non-payment can help you understand their reasons for missing payments. It can also be a useful tool for preventing late payments in the future.

Here are a few common types of customers who pay late:

  • Unhappy customers. It can be easy to understand why a customer who is unhappy with your company might refuse to pay. It can also be easy to work with the customer to come up with a solution to the problem, preferably before late payment becomes an issue. For example, you can include a clause in your contract that explains exactly what will happen if there is a disagreement about the product or work provided. One option might be to offer customers a discount if they aren’t 100 percent satisfied or to offer to perform the work again or provide a replacement product.
  • Customers who have their own business issues. Customers who are having their own company or cash flow issues can fully intend to pay your company’s invoices but might struggle to do so. Although that can be frustrating, the good news is that this type of late payer is often the easiest to work with. They want to pay you, but challenges are getting in the way of them doing so.
  • Customers who never intended to pay in the first place. While some customers do want to make a good-faith effort to pay you, others had no plans on paying to begin with. It can be challenging to identify these customers, and you might not realize you’ve gotten one until it’s too late. One way to handle them is to have new clients make an upfront payment or to ask for at least a portion of the project fee in advance before your company does any work.
  • Large corporations. Large corporations typically operate in a different world compared to smaller or mid-sized B2B companies. They might have their own payment schedules, and those schedules might not line up with your own business’. For example, your company might expect payment within 30 days, but a larger corporation might have no intention of paying you until 90 days have passed.

Come up With a Solution for Excuses

With the possible exception of the customer who never intended to pay your company in the first place, most late-paying clients have a reason or excuse for missing a payment due date. It’s up to you to have a response and solution to these excuses if you hope to get paid on time going forward.

  • We don’t have the cash to pay in full right now. Sometimes, your customer might be in a bad financial situation. That can be tricky for you, especially if you’ve already sold the product or performed the service. If you’re interested in working with the customer in the future and you think the business will come through its current difficulties, you can set up a payment plan with it. Let your customer pay a certain percentage now and make additional payments on a regular schedule. It can also be in your company’s best interest to keep tabs on your customer’s financial health. If you hear rumors of bankruptcy or other financial issues with the company, it’s probably in your best interest to put any current or future projects with that business on hold.
  • Our company pays on this schedule. This is a common excuse with bigger companies. If you work with larger companies who expect longer payment terms — such as net-60 or even net-90 — it can be worth your while to negotiate with them. One option is to offer a discount for payments made within 30 days. You can also work with them at the beginning to set a payment schedule that both of you agree with.
  • You didn’t deliver as you said you would. The excuse of the unhappy customer, “I won’t pay because you didn’t _____.” This is an excuse you might need to handle with care, depending on whether you want to work with a customer again. If someone from your company did genuinely mess up, it’s worth working with the dissatisfied customer to make things right. But if you get the sense that the customer is the type who won’t be happy no matter what you or others from your company do, it might be worth accepting the loss and moving on.
  • We needed to pay our other vendors first. This excuse is a bit insulting. When a customer says it, he or she is suggesting that his or her company values the work and products of other companies more. It could also be that those other vendors have stricter payment terms than your business and the customer is exploiting that. Whatever the reason, you want to reiterate that payment is due. If you work with the customer again, be sure to revise your payment terms so they are more rigid and so the customer doesn’t feel it’s acceptable to pay late.
  • We thought we paid. Sometimes, customers are just disorganized and think they sent payments when they didn’t. If the customer insists that they paid, ask them to produce proof, such as a canceled check or a line on a credit card statement. In the best case, the customer will realize they did miss a payment and will correct the oversight.
  • The person who handles payments is on vacation. Everyone deserves a break from time to time. But having the person who manages accounts payable be away on vacation for a week or two isn’t an excuse to miss a payment. If that happens, ask when the person will return and follow up then. You can also ask to speak to the person who’s filling in during that time.
  • We never got the invoice. This is another classic excuse that’s becoming less and less credible as more and more companies switch to electronic or emailed invoices. If this happens to your business, send the invoice again, then call your contact person again immediately after sending it to confirm that he or she got it. Switching to an automated digital invoice generation system can help further prevent this excuse from arising.

Know How to Follow up With Late-Paying Customers

Unfortunately, a customer who’s late on a payment isn’t likely to suddenly remember that he or she owes you and pay without prodding. Your business needs a plan in place for following up with those who miss payments.


The sooner you take action after a customer’s invoice becomes past due, the better. The longer you wait without getting paid, the more likely you are never to see payment.

Your follow-up plan should begin a few days after the due date and continue until you receive payment or you decide you are better off sending the issue to collections. Here’s a sample schedule to follow:

  • Three Days Late – Send a friendly overdue payment reminder email to your contact person, inquiring about the invoice and payment. Attach the invoice to the email for the contact to review. Ideally, you’ll hear back right away.
  • One Week Late – If you don’t hear anything from your client after your first email, pick up the phone and call your contact person. Remind him or her about the invoice, then ask when you can expect payment.
  • 30 Days Late – If a month has gone by and you haven’t gotten in touch with your contact person, or you have been in touch but haven’t gotten paid, it’s time to escalate things. Reach out to the company’s accounts payable department, if there is one. You can call the office or send a payment collection letter to the client. Try to send the collection letter to the client by a trackable method, such as certified return receipt mail.

Once you get to the 30-day mark, continue to follow up with the client weekly. In some cases, the squeaky wheel does get the grease, or at least the money, so it can pay off to be persistent.

If 60 or 90 days go by and you haven’t heard from your client about payment or if the company keeps promising payment but doesn’t deliver, it might be time to take legal action. That can include sending a demand letter, taking the client to court or sending the account to collections.


When it comes to knowing how to write an email to collect payment, there can be a learning curve. To help keep your company’s message consistent and to reduce the time it takes you to pursue late-paying clients in the future, it can be helpful to create a template so you get the late-payment invoice wording just right.

When creating templates for a letter to your suppliers for late payment, try to keep the tone of the template friendly but firm. There’s no need to be rude, and rudeness will most likely result in your emails or letter getting deleted or discarded, rather than spurring the client to take action.

A sample template might read as follows:

Dear (Client or Contact Name):

Hope you are doing well. Our records indicate that you haven’t yet paid Invoice #____, in the amount of $_____. The due date on the invoice was ______.

We would appreciate it if you would take a minute to pay the invoice. You can pay the account listed above or send a check to _______. We also accept (list other payment methods here). 

Please let us know if you have any concerns or if we can help you in any way. For your reference, I’ve attached a copy of the invoice to this email.

(Your Name)

Make sure that anyone who would have any contact with a late-paying customer knows to use the template, as you want to maintain a consistent voice and tone across your business.


Sometimes, it pays to skip talking to your contact person and go right to the source, or at least right to the department who can get you paid. Speaking with accounts payable can be one way to help your company prevent late payments or to help your company get paid quickly when a late payment occurs.

Accounts payable might be able to give you more information about where your payment is or why it’s late than your primary contact person can. It might also be that your payment is late because the person you’ve been in contact with never forwarded the invoice on to the right department.

Discover the Differences Between AP and AR, Between AP and Notes Payable, and Between AP and Accrued Expenses


Constantly having to follow up with customers who pay late or having to chase down clients for payments can eat into your time. You and your team probably have better things to do than send emails and letters or to spend all day on the phone trying to get paid.

Using automation software and services can save you a considerable amount of time. With an accounts receivable automation service, your clients receive reminders and notices on the dates you specify. The service can also handle escalating cases. For example, if a client is 60 days late, the service might put a hold on the customer’s account or send the invoice to collections.


One of the most important things to remember when following up with late-paying clients is that you need to stay professional. Whether you send the emails and notices yourself or use an automation service, the tone should be friendly and courteous. Never yell at or be rude to a client and avoid using threatening language in your written communications.

How to Prevent Customers From Paying Late

Often, doing what you can to keep customers from paying late is worth more than following up with customers after they’ve missed a due date.

There are a few things you can do throughout your relationship with a customer to make it as easy as possible for them to pay you.

  • Send invoices quickly. It’s better to send an invoice right after a project wraps up rather than wait until the end of the month or end of a billing cycle to send it out. The sooner you send your invoice, the more likely a customer is to pay quickly, since the project is still fresh in his or her mind.
  • Offer easy payment options. The less hassle a client has to go through to pay you, the more likely it is that you’ll get paid quickly. Although you might have to pay fees for accepting payment options such as credit cards or PayPal, accepting those payments means your customers will have less difficulty getting the proverbial check in the mail.
  • Set expectations at the beginning of the relationship. Working with each client to put together payment terms you both agree to before you start work can help you avoid heartache and headache in the future. This part of the process might involve some give and take — you might want to be paid within 30 days, while the client might angle for 60 days. When creating terms and expectations, be sure to include a section that explains what happens if a client is late on payments.
  • Ask for payment or a deposit in advance. Having a client pay upfront or at the very least put down a deposit up front can give you peace of mind that he or she will continue to make payments in a timely fashion. It also sends a signal to the client that your company takes its work seriously.
  • Offer discounts. Sometimes, getting a client to agree to pay within a time frame that works for you can be a challenge. One way to make paying early or on time sweeter for those clients is to offer early-payment discounts. For example, take 10 percent off of the invoice amount if clients pay within 30 days. On the other hand, if your clients are late, you’ll want to tack on a late fee to disincentivize late payments.

Diversify Your Customer Base

While diversifying your customer base won’t necessarily keep your clients from paying late, it can mean that a late payment or two causes your company less harm or does less damage. For example, you have three clients, and one of those clients makes up 75 percent of all your income. If that one client misses a payment, you are out 75 percent of your income for that billing cycle.

In contrast, if you have 10 clients and each client contributes 10 percent of your income, you’ll only be out 10 percent of your revenue for the billing cycle if a client misses a payment.

Work With Clients Who Pay Late

It’s worth the effort to try to work with clients who pay late or who miss a payment, especially if those clients have been loyal customers in the past. One option is to contact the client and offer to set up a payment plan.

It could be that your client is dealing with accounts receivable troubles of its own and is having difficulty getting customers to pay up. Or it might be experiencing a slow period.

However, keep in mind that you’re running a business and that the relationships you have with clients or customers should stay professional. If a client is late once or twice, it’s fine to work with them.

But it can be in your best interests to re-evaluate the relationships you have with customers who often pay late or who need constant prodding to make a payment. Sometimes, you are better off cutting off connections with those who persistently pay late.

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